WELLNESS CENTER USA, INC. Forward Looking Statements
Except for historical information, the following Plan of Operation contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience and (g) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," or "project" or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under "Management's Discussion and Analysis or Plan of Operations" and "Description of Business," as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our
predictions. Background.Wellness Center USA, Inc. ("WCUI" or the "Company") was incorporated inJune 2010 under the laws of theState of Nevada . We initially engaged in online sports and nutrition supplements marketing and distribution. We subsequently expanded into additional businesses within the healthcare and medical sectors through acquisitions, includingPsoria-Shield Inc. ("PSI") andStealthCo Inc. ("SCI"), d/b/aStealth Mark, Inc. The Company currently operates in two business segments: (i) distribution of targeted Ultra Violet ("UV") phototherapy devices for dermatology; and (ii) authentication and encryption products and services. The segments are conducted through our wholly-owned subsidiaries, PSI and SCI. 19
Results of Operations for the year ended
Revenue and Cost of Goods Sold
Revenue for the years ended
Cost of sales for the years endedSeptember 30, 2019 and 2018 was$20,025 and$79,960 , respectively. Gross profit for the years endedSeptember 30, 2019 and 2018, was$13,350 and$133,763 , respectively. The gross profit decrease of$120,413 in 2019 was primarily due to the decrease in sales. Operating Expenses Operating expenses for the years endedSeptember 30, 2019 and 2018 was$1,779,934 and$2,226,362 , respectively. The decrease in operating expenses of$446,428 was due to the decrease in operating expenses at SCI and at the corporate segment, offset by the increase in operating expenses at the Medical Device segment. The decrease in expenses at the corporate segment primarily related to the decrease in stock compensation expenses. Stock compensation expenses totaled to$300,925 and$612,503 during the years endedSeptember 30, 2019 and 2018, respectively. Other Expenses
Other expenses during the year ended
Other expenses during the year endedSeptember 30, 2018 consisted of$318,038 of amortization of debt discount,$158,400 relating to a loss on the modification of the conversion price on a convertible note payable,$5,445 relating to a loss on the modification of the exercise price on warrants in connection with the convertible note payable,$891,583 of financing costs, and$27,354 of interest expense. Total other expenses totaled to$1,400,820 . Net Loss
Our net loss for the years endedSeptember 30, 2019 and 2018 was$2,046,024 and$3,493,419 , respectively. The decrease in the net loss of$1,447,395 was primarily due to the decrease in operating expenses of$446,428 in 2019, and the decrease in total other expenses in 2019 of$1,121,380 . 20 Segment Information Reportable segments are components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The Company operates in the following business segments:
(i) Medical Devices: which stems from PSI, its wholly-owned subsidiary acquired
on
(ii) Authentication and Encryption Products and Services: which stems from StealthCo, its wholly-owned subsidiary formed onMarch 18, 2014 , which has engaged in the business of selling, licensing or otherwise providing certain authentication and encryption products and services since acquisition of certain assets from SMI onApril 4, 2014 .
The detailed segment information of the Company is as follows:
Operations by Segment
For the Year Ended
September 30, 2019
Authentication
Corporate Medical Devices and Encryption Total
Sales:
Trade $ - $ - $ 19,508 $ 19,508
Consulting services - - 13,867 13,867
Total Sales - - 33,375 33,375
Cost of goods sold - - 20,025 20,025
Gross profit - - 13,350 13,350
Operating expenses 782,961 641,236 355,737 1,779,934
Loss from operations$ (782,961 ) $ (641,236 ) $ (342,387 ) $ (1,766,584 ) Operations by Segment For the Year Ended September 30, 2018 Medical Authentication Corporate Devices and Encryption Total Sales: Trade $ -$ 45,000 $ 95,023$ 140,023 Consulting services - - 73,700 73,700 Total Sales - 45,000 168,723 213,723 Cost of goods sold - - 79,960 79,960 Gross profit - 45,000 88,763 133,763 Operating expenses 1,179,937 224,196
822,229 2,226,362
Loss from operations$ (1,179,937 ) $ (179,196 ) $
(733,466 )$ (2,092,599 ) Revenue for the Medical Devices segment for the year endedSeptember 30, 2018 was$45,000 . There was no revenue for the Medical Devices segment for the year endedSeptember 30, 2019 . The decrease of$45,000 was due to the decrease in sales of their Psoria-Light devices. There were no cost of sales for the years endedSeptember 30, 2019 and 2018, as their inventory had been written-off in previous years. Gross profit for the year endedSeptember 30, 2018 was 45,000. The decrease in gross profit of$45,000 in 2019 was due to the decreased sales in 2019. Operating expenses for the years endedSeptember 30, 2019 and 2018 was$641,236 and$224,196 , respectively. The increase in operating expenses of$417,040 in 2019 was due primarily to the increase in R&D expenses, consulting fees and contract labor. The loss from operations for the years endedSeptember 30, 2019 and 2018 was$641,236 and$179,196 , respectively. Revenue for the Authentication and Encryption segment for the years endedSeptember 30, 2019 and 2018 was$33,375 and$168,723 , respectively. The decrease of$135,348 was due to the decrease in trade sales and consulting services. Cost of goods sold for the years endedSeptember 30, 2019 and 2018 was$20,025 and$79,960 , respectively. Gross profit for the years endedSeptember 30, 2019 and 2018 was$13,350 and$88,763 , respectively. The decrease in gross profit of$75,413 was primarily due to the decrease in sales. Operating expenses for the years endedSeptember 30, 2019 and 2018 was$355,737 and$822,229 , respectively. The decrease in operating expenses of$466,492 was due primarily to the decrease in labor costs, consulting costs and professional fees in 2019. The loss from operations for the years endedSeptember 30, 2018 and 2017 was$342,387 and$733,466 , respectively. The Corporate segment primarily provides executive management services for the Company. Operating expenses for the years endedSeptember 30, 2019 and 2018 was$782,961 and$1,179,937 , respectively. The decrease in operating expenses in 2019 of$396,976 was primarily due to the decrease in stock compensation expenses. The loss from operations for the years endedSeptember 30, 2019 and 2018 was$782,961 and$1,179,937 , respectively.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has not yet generated significant revenues and has incurred recurring net losses. During the year endedSeptember 30, 2019 , the Company incurred a net loss of$2,046,024 and used cash in operations of$1,219,313 , and had a shareholders' deficit of$1,083,994 as ofSeptember 30, 2019 . These factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and implement its strategies. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. AtSeptember 30, 2019 , the Company had cash on hand in the amount of$53,147 . Management estimates it has sufficient cash to operate throughFebruary 2020 . The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital soon to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, we have funded our operations primarily through equity and debt financings and we expect to continue to rely on these sources of capital in the future. During the year endedSeptember 30, 2019 , the Company received$1,293,250 through loans payable from officers and shareholders, the sale of its common stock, and from contributions of capital by a joint venture partner. Subsequent toSeptember 30, 2019 , the Company received additional advances from shareholders of$310,000 (see Note 13). 21 No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing. Our independent registered public accounting firm issued a going concern opinion. This means that they expressed substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital.
Comparison of years ended
As of
As of
Cash flows used in operating activities
During the year endedSeptember 30, 2019 , we used cash flows in operating activities from continuing operations of$1,219,313 , compared to$1,037,073 used in the year endedSeptember 30, 2018 . During the year endedSeptember 30, 2019 , we incurred a net loss of$2,046,024 and had non-cash expenses of$700,153 , compared to a net loss of$3,493,419 and non-cash expenses of$2,099,776 during the year endedSeptember 30, 2018 .
Cash flows used in investing activities
During the years ended
Cash flows provided by financing activities
During the year endedSeptember 30, 2019 , we had proceeds from loans payable from officers and shareholders of$358,250 , from the sale of common stock and warrants of$10,000 and proceeds of$925,000 from contributions of capital by its joint venture partner. The Company used cash to repay loans payable from officers and shareholders of$25,000 . During the year endedSeptember 30, 2018 , we had proceeds from loans payable from officers and shareholders of$434,500 , from convertible notes payable of$250,000 , from the sale of common stock and warrants of$177,000 , and from the exercise of stock warrants of$170,914 . We used cash to repay loans payable from officers and shareholders of$20,500 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Employees
We currently employ our executive officers and PSI has several independent contractors.
Summary of Significant Accounting Policies.
The Company's significant accounting policies are presented in the Notes to the Consolidated Financial Statements (see Note 2 of the audited consolidated financial statements included herein).
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